Oath. What Oath?

I, Judy Wilson-Raybould, do solemnly and sincerely swear (declare) that I shall be a true and faithful servant to Her Majesty Queen Elizabeth the Second, as a member of Her Majesty's Privy Council for Canada. I will in all things to be treated, debated and resolved in Privy Council, faithfully, honestly and truly declare my mind and my opinion. I shall keep secret all matters committed and revealed to me in this capacity, or that shall be secretly treated of in Council. Generally, in all things I shall do as a faithful and true servant ought to do for Her Majesty.

It’s time to revisit income trusts while avoiding their worst excesses

James Scarlett

The Globe and Mail

Published Friday, Mar. 18, 2016 

James Scarlett is a partner at Torys LLP.

There’s a lot of talk these days about the need for Canadians to save more for retirement, but with a sputtering economy, weak job-creation numbers and interest rates seemingly stuck at near-record lows, that’s easier said than done.

Fortunately, Canada has a new federal government that has committed itself to applying open-minded and fresh thinking to tackling difficult issues. So, here’s a suggestion for Prime Minister Justin Trudeau and his government looking for ways to boost the economy and create a steady stream of investment income for Canadians who need it: It’s time to give income trusts another look.

On Oct. 31, 2006, the Conservative government killed income trusts and, in so doing, dealt a serious blow to capital formation and retail-investor choice in Canada. It appeared at the time that the government was concerned about a loss of corporate tax revenue (despite the fact that numerous studies did not support that fear) and the unbridled growth of income funds generally.

Unfortunately, the government’s actions that day ended any discussion about how income trusts could have been adapted to address those concerns without losing the benefits they brought to the Canadian economy and investors.

A lot has changed since late 2006. Back then, the economy was doing well. Capital markets were robust. Commodity prices were strong. There wasn’t the faintest inkling of the impending paralysis of credit markets in 2007 and crash of stock markets in 2008.

Since then, Canada’s economy has not done well. Stagnant growth. Low or negative after-tax returns on investment. Moribund capital formation. We are clearly in need of ideas to stimulate economic activity and returns for investors.

How would bringing back income trusts help achieve these goals?

First and foremost, income trusts would give Canadian retail investors a wider choice of higher-yield, income-producing investment alternatives at a time when traditional retail-debt investments are producing rates of return that are low, or even negative after tax and inflation. Income-trust investments would give people more money to save for retirement or to spend and further stimulate the economy.

Institutional investors, such as private equity funds and pension funds, can currently make investments that are functionally equivalent to income trusts. Why not provide the same opportunities to retail investors? Allowing income trusts to return would put retail investors on a level playing field with institutional investors. Think about the hundreds of billions of dollars that are needed for infrastructure projects in the coming decade. Institutional investors will be big players in that space and the stable, long-term income-generating investments it will produce. Why not give retail investors a shot at those investments through the involvement of publicly traded income trusts?

More generally, revising income trusts would help to revive a moribund market for initial public offerings, generating capital-market activity and putting more money to work, which could have positive effects on the broader Canadian economy. Income trusts would also provide small- and medium-sized companies with access to the subdebt market, giving them a source of funds at lower cost than other financing options currently available.

But can we bring back income trusts in a way that captures their benefits while avoiding the worst of their excesses, real or imagined?

In their first incarnation, income trusts owned debt and shares of corporations in which the business was carried on. The corporation owned by the income trust relied on traditional sources of tax shelter, such as interest expense and capital cost allowance, to free up cash that could be paid to the income fund and on to holders of trust units.

The amount of tax shelter was largely fixed at the inception of the trust, so any growth in the underlying business was subject to usual rates of corporate tax. But the moderating effect of this structure was lost when, with the concurrence of Canadian tax authorities in the form of favourable advance tax rulings, income trusts were organized without the use of corporations but rather through the use of partnerships, which are flow-through entities and do not pay corporate-level tax. This change allowed – and even encouraged – virtually unlimited distribution of operating income without payment of any corporate tax.

So what if we went back to the early structure of income trusts, where the underlying business of the trust is held in a corporation that issues shares and debt to the trust, and where distributions on those securities would fund the income trust’s distributions to its investors? The moderating effect of this structure, with the underlying business held in a corporation and with the available tax attributes being essentially fixed at the outset, should avoid the excesses of the past, while allowing substantial benefits to flow to capital markets and investors. It might be necessary to put limits on the amount of debt that could be issued to prevent abuse, and that should be part of any discussion about the merits of reinstating income trusts for retail investors.

The issues presented by income trusts are challenging and complex, but if fairness and neutrality between retail and institutional investors are good policy objectives – and they are – it’s time to begin the discussion.

By revisiting the issue in a spirit of flexibility and creativity, it should be possible to come up with a solution that’s positive for investors and businesses, for capital markets and for the economy as a whole.

The views expressed are those of the writer alone and may not reflect the views of his law firm.

The latest joke from the CBC

What a joke! The CBC has set up a website where sources can post anonymous tips about wrongdoing in the belief that the CBC will actually pursue these stories.

Any belief on the part of Canadians that the CBC would actively pursue wrongdoing is totally misplaced, as evidenced by the CBC's complete unwillingness to pursue Harper's $35 billion income trust fraud.

The CBC was repeatedly asked by Canadians across the country to investigate this matter, but instead CBC actively suppressed this news story and the falsehood's behind Harper's tax leakage arguments, as blogged about here:

CBC’s active suppression of the news

CBC has flushed income trust taxpayers down their toilet

Blown off by Don Newman

CBC’s pretense of soliciting questions from Canadians for Stephen Harper

This is  grossly irresponsible on the part of the CBC

Hey, doesn't CBC's Amanda Lang's husband work for Peter Munk?

etc. etc.

Now that the Liberals are in power, this should be a no-brainer

March-03-08

  

For Immediate Release

February 29, 2008

 

Liberal Finance Committee Members call on Auditor General to Examine Government’s Claims of Income Trust Tax Leakage

 

OTTAWA – Liberal Members of the Standing Committee on Finance today called on the Auditor General to investigate the tax leakage claims that the government used as the basis for its October 31, 2006, decision to tax income trusts. 

 

“I think that this government’s stonewalling has gone on long enough and it’s time that Canadians got to see that the Government simply made up its story that income trusts cause federal tax leakage,” said Liberal Finance Critic John McCallum. 

 

“Prime Minister Stephen Harper promised to Canadians that he would never tax income trusts.  Then he went back on his word, costing Canadians billions overnight and in the wake of his silence on the issue we feel that only the Auditor General can shine some light into this matter.”

 

All four Liberal Members of the Finance Committee signed a letter to Auditor General Sheila Fraser asking her to investigate the matter, particularly the government’s unproven allegations about income trusts causing tax leakage.

 

“This has clearly become much more than just another instance of the government not doing its homework before acting.  It has become a full-blown scandal and cover-up,” said John McKay, Member of Parliament for Scarborough-Guildwood.  “We have tried virtually every tool at our disposal to get the government to show us how they came to their conclusions about tax leakage and the Auditor General may be Canadians’ last resort.”

 

An Access to Information request asking for the Department of Finance’s assumptions, data and methodology resulted in the release of only 23 pages of documents that are almost entirely blacked out.

 

A direct request from the Finance Committee to see the data was met with two thick binders of superfluous information that did not contain the data or methodology originally requested.

 

A written question was placed on the Order Paper asking the government to recalculate its estimate of tax leakage using the 15 per cent federal corporate tax rate that will actually be in effect in 2012, the year after the income trust tax begins, as opposed to the 21 per cent tax rate that was in effect at the time of the announcement.  The government’s response to the question indicated that that this would be a hypothetical calculation and therefore impossible to do.

 

“That’s not a hypothetical, that’s what the federal tax rate will be,” said Garth Turner, Member of Parliament for Halton.  “If the government can’t manage to run the new 2012 corporate tax rate through their calculators then I have no reason to believe they ran the old one through their calculators in October of 2006.”

 

In 2006, Stephen Harper ran on a campaign commitment to never tax income trusts.  The Conservative election platform characterized any attempt to impose such a tax as, “An attack on retirement savings.”

 

“That election commitment was obviously a falsehood. Unfortunately the voters who believed it and invested even more money in income trusts lost a significant portion of their nest eggs,” said Massimo Pacetti, Member of Parliament for MP for Saint-Léonard—Saint-Michel. 

 

“Even today, 15 months after they broke their election promise, Members of Parliament still hear from the thousands of Canadians whose retirement plans were shattered by this deception. Liberal Members of Parliament continue to stand up for them.”

 

 

-30-

 

The full text of the letter sent to the Auditor General is attached.

 

To see the government response to written question 149 on the Order Paper please visit: www.liberal.ca/pdf/docs/080229_Q-149_en.pdf

Harper's faded economic vision for Canada

Pretty much sums it up.

Mr. Tory - tear down this wall

John Allemang wrote an interesting piece in today's Globe concerning the decision facing Toronto council about whether to spend another $1 billion to perpetuate the bad idea known as the Gardiner extension or do something more progressive than repeating past mistakes.

That article is entitled: Beneath the Gardiner, a soul-destroying wasteland lurks  to which I posed the following comment:

Well put John Allemang, and from an interesting perspective, that of the pedestrian.

Any decision concerning this portion of the Gardiner needs to be made, not in isolation, but in the broader context of what's to be done with the entirety of the Gardiner. $1 billion is no trifling sum of money that Toronto taxpayers will be spending. This decision also needs to be made in the broader Toronto interests, rather than the more narrow interests who are calling for a preservation of the status quo (at a cost of $1 billion).

I think everyone agrees that the Gardiner is an idea that did not realize on its original 1950's promise, and is not something that any urban planner would recommend today. That said, how can it possible be considered a good idea to simply perpetuate a bad idea, by preserving  the Gardiner at a cost of 41 billion?

Tory's hybrid idea sounds more like a campaign to mask all of the obvious ills of the Gardiner, with some token gestures of making what's bad feel less bad, much like the exercise of putting lipstick on a pig.

Fixing what's wrong with the Gardiner won't be cheap, but rather than throwing $1 billion to perpetuate the bad idea known as the Gardiner, how about spending some real money and coming up with a real solution, such as the tunnel that is being proposed? Toronto and Torontonians deserve real solutions and not band aid solutions as the incremental cost, as between the two, will prove itself money well spent over the short, immediate and long term and won't be a decision that future generations will be second guessing, as we are now doing with the Gardiner.

Maybe we could call it the Tory Tunnel as that might appeal to the Mayor's ego and might get him to think straight on this major decision that he's presently headed down the wrong direction on.

Well put John Allemang, and from an interesting perspective, that of the pedestrian.

Any decision concerning this portion of the Gardiner needs to me made, not in isolation, but in the broader context of what's to be done with the entirety of the Gardiner. $1 billion is no trifling sum of money that Toronto taxpayers will be spending. This decision also needs to be made in the context of the broader Toronto interests, rather than the more narrow interests who are calling for a preservation of the status quo (at a cost of $1 billion).

I think everyone agrees that the Gardiner is an idea that did not realize on its original 1950's promise, and is not something any urban planner would recommend today. That said, how can it possibly be considered a good idea to simply perpetuate a bad idea, by preserving the Gardiner at a cost of $1 billion, as people like John Tory are proposing?

Tory's hybrid idea sounds more like a campaign to mask all the obvious ills of the Gardiner with some token gestures of making what's bad feel less bad, much like the exercise of putting lipstick on a pig.

Fixing what's wrong with the Gardiner won't be cheap, but rather than throwing $1 billion to perpetuate the bad idea known as the Gardiner, how about spending some real money and come up with a real solution, such as the tunnel that is being proposed? Toronto and Torontonians deserve real solutions and not band aid solution, as the incremental cost, as between the two, will prove itself money well spent over the short, immediate and long term and won't be a decision that future generations will be second guessing, as we are now doing with the Gardiner.

Maybe we could call it the Tory Tunnel as that might appeal to the Mayor's ego and might get him to think straight on this major decision that he's presently headed down the wrong direction on.

Well put John Allemang, and from an interesting perspective, that of the pedestrian.

Any decision concerning this portion of the Gardiner needs to me made, not in isolation, but in the broader context of what's to be done with the entirety of the Gardiner. $1 billion is no trifling sum of money that Toronto taxpayers will be spending. This decision also needs to be made in the context of the broader Toronto interests, rather than the more narrow interests who are calling for a preservation of the status quo (at a cost of $1 billion).

I think everyone agrees that the Gardiner is an idea that did not realize on its original 1950's promise, and is not something any urban planner would recommend today. That said, how can it possibly be considered a good idea to simply perpetuate a bad idea, by preserving the Gardiner at a cost of $1 billion, as people like John Tory are proposing?

Tory's hybrid idea sounds more like a campaign to mask all the obvious ills of the Gardiner with some token gestures of making what's bad feel less bad, much like the exercise of putting lipstick on a pig.

Fixing what's wrong with the Gardiner won't be cheap, but rather than throwing $1 billion to perpetuate the bad idea known as the Gardiner, how about spending some real money and come up with a real solution, such as the tunnel that is being proposed? Toronto and Torontonians deserve real solutions and not band aid solution, as the incremental cost, as between the two, will prove itself money well spent over the short, immediate and long term and won't be a decision that future generations will be second guessing, as we are now doing with the Gardiner.

Maybe we could call it the Tory Tunnel as that might appeal to the Mayor's ego and might get him to think straight on this major decision that he's presently headed down the wrong direction on.

Well put John Allemang, and from an interesting perspective, that of the pedestrian.

Any decision concerning this portion of the Gardiner needs to me made, not in isolation, but in the broader context of what's to be done with the entirety of the Gardiner. $1 billion is no trifling sum of money that Toronto taxpayers will be spending. This decision also needs to be made in the context of the broader Toronto interests, rather than the more narrow interests who are calling for a preservation of the status quo (at a cost of $1 billion).

I think everyone agrees that the Gardiner is an idea that did not realize on its original 1950's promise, and is not something any urban planner would recommend today. That said, how can it possibly be considered a good idea to simply perpetuate a bad idea, by preserving the Gardiner at a cost of $1 billion, as people like John Tory are proposing?

Tory's hybrid idea sounds more like a campaign to mask all the obvious ills of the Gardiner with some token gestures of making what's bad feel less bad, much like the exercise of putting lipstick on a pig.

Fixing what's wrong with the Gardiner won't be cheap, but rather than throwing $1 billion to perpetuate the bad idea known as the Gardiner, how about spending some real money and come up with a real solution, such as the tunnel that is being proposed? Toronto and Torontonians deserve real solutions and not band aid solution, as the incremental cost, as between the two, will prove itself money well spent over the short, immediate and long term and won't be a decision that future generations will be second guessing, as we are now doing with the Gardiner.

Maybe we could call it the Tory Tunnel as that might appeal to the Mayor's ego and might get him to think straight on this major decision that he's presently headed down the wrong direction on.

Don't fire Evan Solomon, reassign him as CMO of the CBC

Quite interesting that the CBC, as an organization, is struggling with how to monetize its service, while enterprising folks like Amanda Lang and Evan Solomon figured that out a long time ago, albeit  leveraging off their CBC gigs for personal gain.

Maybe Evan should be reassigned to Chief Monetization Officer of the CBC instead of fired? That way he could employ his true talent for leveraging off the CBC brand and generating money for the cash strapped organization, in the same way he did for his own self, by brokering art deals and using his guest list at Power and Politics as a "prospect list".

Amanda, on the other hand, should simply be fired, as she is beyond reprieve or useful purpose.

Unfortunately what neither Amanda Lang or Evan Solomon realize is that whatever power they think they possess, it's very fleeting and actually not even theirs to begin with.

People like Amanda Lang and Evan Solomon got easily seduced into thinking they possess the power they employ, when in fact that power derives from their employer, namely the CBC.  Management of the CBC, on the other hand, seem to think the power resides with their on-air personalities, which is why these scandals are perpetuated in the CBC rather than dealt with.

Management of the CBC has created a culture where these kinds of abuses have been allowed to flourish, and management are the main culprit, which is not to absolve folks like Amanda and Evan, who simply opportunistically exploited a weak system, as greed driven persons are want to do.

David Brooks of the New York Times often makes this very point when he appears on PBS Newshour every Friday saying things like "I doubt whether much of what I have to say would be of much relevance if it weren't for the fact that I write for the New York Times."

Time for the media "personalities" at the CBC along with management of the CBC to awaken to that reality as well.